Provides a depth of coverage that is both flexible and permanent. Tax-deferred benefits, living benefits and protection against the unexpected are included.
Universal life insurance is a type of permanent life insurance policy that is generally more affordable than other options. In addition to providing a death benefit, universal life insurance also provides flexible premiums and includes a cash value savings component which can be used to supplement income and pay expenses.
Beyond affordability, universal life (UL) policies are also considered to be the most flexible kind of life insurance. Rather than simply providing a fixed death benefit amount for a fixed premium payment, UL policies offer policyholders flexibility with their premium payments and their death benefit amount.
People who own universal life insurance policies can make periodic adjustments according to their needs. UL policies also offer a built-in cash value, so you can set money aside on a tax-deferred basis, right inside your policy.
Why Do I Need Universal Life Insurance?
The reasons for buying universal life insurance are almost as varied as the number of policies available for purchase.
For most people, providing a ready source of funding for grieving loved ones after death is an important consideration. When you die, will your loved ones be able to afford to pay your final expenses and debts and be able to maintain their current standard of living? If the answer is "no", it's time to explore various life insurance options to determine what makes the most sense for your situation.
How Does Universal Life Insurance work?
Just like other forms of insurance, you'll need to apply for coverage and pay an initial premium. Once your policy is in-force, you'll need to make periodic premium payments to keep your life insurance benefits.
One of the best features of universal life insurance is the flexibility with your premium. You can pay higher premiums to add to your policy's cash value when you're able. Or, if you need to reduce the premium for a period of time, you can make adjustments to the policy to accommodate that.
Q: What are the advantages of Universal Life Insurance?
Universal life insurance is popular for many reasons.
Q: Do I qualify for Universal Life Insurance?
When you apply for any type of life insurance policy, you'll need to answer questions about your health, including any medical conditions you have been diagnosed with or treated for. You'll also be asked questions about your occupation and lifestyle. The insurance company evaluates this information in determining whether to approve your new insurance policy. Many universal life insurance policies are offered with limited underwriting requirements, meaning you may not need to complete a physical examination as part of the application process.
Q: Can I afford Universal Life Insurance?
Premiums for universal life insurance policies are typically higher than term insurance, but less expensive than premiums for whole life insurance policies. The price you pay will depend on the face amount of the policy (the amount of the death benefit payable after your death), your age at the time you apply, and your overall health. If you are a non-smoker, your premiums will generally be less expensive than those paid by regular tobacco users.
One of the biggest benefits of universal life insurance is the built-in flexibility when it comes to your premiums. If you experience a temporary financial hardship after your policy has been in force for a certain length of time and have sufficient cash value inside your policy, you may be able to rely on that cash value temporarily to help you keep the policy in force until you can afford to resume the full premium amount again.
Q: When should I buy Universal Life Insurance?
Universal life insurance is a smart choice for people who want some flexibility with their life insurance policies. Because your premiums will be based on your attained age and health at the time you apply, there's no better time to apply than the present.
Q: What happens if I miss a premium payment for my universal life insurance policy?
One of the key benefits of universal life insurance policies is their flexibility when it comes to premiums. Because cash value accumulates inside the policy, the policy owner may be able to occasionally miss a premium payment without causing the policy to lapse immediately. The cost of insurance would be withdrawn from the accumulated cash value to keep the policy in force. Of course, relying on this flexibility too frequently or for an extended period of time will likely mean that additional premium payments would be required in the future in order to keep the policy going.
UNIVERSAL LIFE INSURANCE
What’s the Difference Between Term Life Insurance and Universal Life Insurance?
For most people who aren't in the insurance or financial services industry, trying to understand what different types of life insurance products are, and how they differ from one another, can be confusing. In this post, we'll review the similarities, and key differences, of two common types of life insurance: term life insurance and universal life insurance .
When you have a better understanding of how these products work, you will be able to make an informed decision about which type of life insurance will best meet your needs, and your budget.
How Term Life and Universal Life Insurance are alike
Before we examine their differences, let's spend a moment reviewing the similarities between term and universal life insurance .
First and foremost, they both offer important protection for what's most important to you. Your life insurance policy has a "face amount" death benefit. If you die while the policy is in force, the insurance company will pay that death benefit to your named beneficiary(ies). Your loved ones can then use those funds to pay off a mortgage or other debts, pay your final expenses , pay estate or death taxes, help make up for the sudden loss of income that may occur when you die, or for whatever other purpose they want to use the proceeds.
Life insurance benefits are generally income tax free to the recipient, although there are some limited circumstances where a portion of the proceeds might be taxed for universal life policies; that's a topic for another day's life insurance blog post.
Key Differences
When you look under the hood, term insurance and universal life insurance are very different vehicles. Here are some of the key things to consider when choosing a type of life insurance to protect your loved ones:
Duration
One of the most important things to understand when you're buying life insurance is the duration of coverage.
When you purchase term life insurance , you are essentially renting coverage for a pre-defined period of time. If you have a ten-year term insurance policy, that means that, as long as you continue making your premium payments, the insurance company will pay the death benefit to your named beneficiaries if you die any time within the policy term. If your death occurs after the policy term expires, however, your loved ones will not receive anything. You may have the option of renewing coverage for higher premiums at the end of your policy term.
In contrast, universal life insurance is designed to provide coverage for a longer period of time. If enough premiums are paid to keep the policy in force, the policy could last until the policy's maturity date, which could be as high as age 121 (depending on the specific company and policy.)
Term life insurance is a popular choice for young homeowners who want to make sure funds would be available to pay off a mortgage in the event of premature death, or to provide for income replacement if one spouse was to die prematurely.
Universal life insurance may be more appropriate for a longer-term insurance need, such as providing estate liquidity for taxes, leaving a charitable legacy or providing an inheritance for loved ones.
Cost
As you might expect, term life insurance is cheaper than buying universal life coverage. That's because term life insurance premiums only include the cost of insurance, and the policy is only expected to be in force for a fixed period of time. The insurance company calculates the odds of the policy holder dying within the policy term when calculating premiums.
In contrast, universal life insurance is more expensive than term insurance. Instead of policy premiums simply representing the cost of insurance, universal life insurance premiums also include an amount that is credited to the policy's "cash value" account. Think of the cash value as a side fund that accumulates inside the insurance policy. When you pay premiums for universal life insurance, if the cost of insurance is less than the cash value, then the extra amount is added to the cash value. That side fund is credited with an interest rate that is usually competitive (specified in the policy.) If premiums are not enough to pay for the cost of insurance, then the cash value is there to make up the difference.
Because pricing for universal life insurance policies is based on projections about the cost of insurance and interest rates, it is important to watch these policies over time to make sure the cash value account is "funded" appropriately so the policy stays in force without the need to raise policy premiums in the future. Your insurance professional can help you review and understand policy illustrations.
Flexibility
Term insurance is inflexible; if you do not pay your policy premium, the policy will terminate and coverage will end.
In contrast, universal life insurance is a flexible type of policy. Because of the cash value component of the insurance policy, there is some flexibility if you are unable to make your full premium payments for a period of time. If premiums are not paid, the cost of insurance will be drawn from the cash value account so you retain coverage. You can also choose to intentionally pay more as extra cash value contributions with your premium payments, to accumulate a cushion within your policy.
Loan and withdrawal features
One popular feature of universal life insurance policies is the ability to borrow from, or withdraw from, the accumulated cash value within your insurance policy. When you take a policy loan, you are borrowing from yourself, and paying a competitive rate of interest to yourself when you make loan repayments.
Taking a partial withdrawal or a loan from cash value to cover an unexpected expense can be an attractive alternative to borrowing from a bank at higher interest rates, or using a credit card for a large purchase. Of course, using the cash value for loans and withdrawals can change how "healthy" the policy is, so to avoid surprise premium requirements in the future, it's a good practice to repay loans as soon as possible and to not treat your life insurance policy as a piggy bank.
Because term life insurance does not have a cash value component, policy holders do not have the option of borrowing against, or withdrawing cash from, their policies.
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